What happens when my Interest Only term expires?
Yes, the life of an interest only loan is not forever or at least the 30 year mortgage term that you may have signed up for!
Banks actually WANT you to start paying off that mortgage at some stage and they are obliged to do this under the Responsible Lending Code.
In the past, the interest only option was quite favourable among the property investor population as any interest was tax-deductible. You would then put all of your money into paying down the mortgage on your personal property. However, the Government started phasing out tax-deductions on investment properties from October 2021. As such, this strategy is becoming less relevant.? However, some clients are still wanting to continue with this approach for a couple of reasons:
When we are in an increasing interest rate environment that we see ourselves in today, having the double whammy of coming off a low interest rate PLUS coming to the end of your interest only term can be quite daunting!
For example; if you have a loan of $500,000 on an interest rate of 2.99% and you are now having to refix at say 6%, your interest payments will have nearly doubled from $1,245 per month to $2,500 per month!
That's just the interest cost. When your loan switches to principal and interest and assuming you have 28 years left on the loan term, your repayments will now be a whopping $3,076 per month.
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The KEY MESSAGE here is: Don't get caught out and leave it to the last minute.
Talk to us before your interest only period expires so we can look at extending it if needed or re-assess your options to take advantage of the many cash back incentives on offer from the banks at the moment.??
Cheers,
Cam
??027 687 5784